Record South America soy crop won't hurt prices

ShaneRomig

BUENOS AIRES--Farmers in Brazil, Argentina and Paraguay are gearing up for record soybean crops but international prices are likely to remain sky-high due to tight global supply following drought in South America last season and the current dry spell battering the U.S. crop.

Soaring prices and prospects for beneficial showers due to the El Nino weather phenomenon will likely drive South America's planted area new highs, padding farmers' wallets and giving a much-needed boost to the region's cooling economies.

Brazil is on track to displace the U.S. as the world's top soybean grower for the first time. Together with Argentina and Paraguay, the South American farming power-houses are expected to produce over half of all the world's soybeans next year, a key feed for livestock across the globe.

"Prices will remain very high" until record, or near-record South American crops are confirmed, said Terry Reilly, senior commodities analyst at Citibank. Reilly predicts January 2013 soybean prices ending the year at about $14.75 per bushel from the current price of about $15.48 at the Chicago Board of Trade.

In the U.S. Midwest drought has withered expectations for the 2012-13 crop, sending Chicago soybean futures to an all-time high last week.

While drought bakes the developing U.S. crops in the Northern hemisphere, Southern hemisphere farmers are bundled up and waiting for spring to arrive with expectations for El Nino soaking the fields.

During El Nino, waters of the equatorial Pacific Ocean warm and usually produce abundant rains across Argentina, Uruguay, Paraguay and southern Brazil.

"We're excited. I think El Nino will be confirmed and give us a lot of soy out there," said Roni Alessio, who grows soybeans and corn in Brazil's Mato Grosso do Sul state.

An outstanding winter corn crop this year should fatten Brazil's stocks of the grain and embolden farmers to cut back on corn in favor of soybeans during the main summer crop, said Aedson Pereira, a grains analyst at Informa Economics FNP in Sao Paulo.

"The 2012-13 crop has everything to be a year in which we finally surpass the U.S.," Agroconsult analyst Marcos Rubin said. Agroconsult expects Brazil's 2012-13 soybean production to rise 25% from the previous year to 83.1 million tons, beating the U.S.'s drought-hampered crop by a nose as total acreage expands 11% and yields recover.

But it isn't just the Brazilian farmers rubbing their palms together.

Argentina is expecting a record soybean crop next season because of El Nino and as farmers shift away from corn due to the high cost of raising that crop. Corn area is likely to fall to 4.2 million hectares next season from 5 million hectares in 2011-12, according to Agritrend analyst Gustavo Lopez. Higher seed, fertilizer and agrochemical costs for corn will fuel the shift, said Buenos Aires Cereals Exchange crop analyst Esteban Copati.

Argentine farmers will plant as much as 20 million hectares (49 million acres) with soybeans in the 2012-13 season, 1 million more than during the previous season, according to analysts.

That could lead to production of 55 million metric tons, topping the previous record of 52.7 million set in the 2009-10 season--the last time El Nino showed its face, according to Agripac Consultores analyst Pablo Adreani.

Meanwhile, in No. 4 global soybean exporter Paraguay planted area is seen rising about 10% from the previous record of just under three million hectares set last season, said Luis Cubilla, farming adviser for Paraguayan grain-export chamber Capeco.

Last season, Paraguay's production plummeted to 4.4 million metric tons, down from 7.1 million tons in the 2010-11 season, due to the drought. If yields during the upcoming 2012-13 season match those of 2010-11, production will set a new high mark of 8.1 million tons.

But there's some worry from climatologists that El Nino may not live up to expectations.

So far El Nino is shaping up to be mild and unusually dry, said Eduardo Sierra, chief climatologist for the Buenos Aires Cereals Exchange. "Everyone is talking about El Nino and a bumper crop," but it doesn't look to be shaping up that way.

"It's going to be a good, but not bumper, soy crop," said Weather Wise climatologist Anthony Deane. It won't be enough to make up for the losses being suffered in the U.S. right now, he added, which bodes well for continued high global soybean prices.

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